The Best Buy-Write Closed-End Funds

By greg group: One of the more popular income strategies is to use a buy-write option strategy to sell option premiums for income. This is simply owning 100 or more shares of stock, and selling a one covered call option per 100 shares of stock. While many investors use this strategy in their portfolios, others invest in closed-end funds that use this strategy and distribute the proceeds to shareholders. This is a great strategy in specific type of markets, such as sideway movements in the general stock markets. The biggest myth to this strategy is that covered call writing does not work and the CEFs are only returning the investors' capital disguised as distributions. This is incorrect, as return of capital by CEFs is based on accounting definitions when using option strategies like covered call trades.Most of the CEFs that use an option strategy will use return of capital (ROC) for aComplete Story »

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Options strike most as exotic investment transactions. And some option strategies can be risky. But stock options can also be used in ways that are not risky. Call options give you the right to buy a stock at a certain price (the strike price) on, or before, a certain date (the expiration date). So if you want to speculate that a stock will go up in a short period of time you can buy call options.

By Alan Ellman:Wait a minute! What if I buy a call option instead of the stock and then sell a call option on that option? I’ll be spending less money than outright purchase of the equity and still generate cash from the sale of the call option! Although not a true covered call write, purchasing a long-term option (more than one year out), called LEAPS, and then selling call options against that position, is an alternate strategy similar to covered call writing.

By Elliot Glass:Many closed end funds sell options against their holdings. They're called buy-write funds. Many investors do the same thing with their individual holdings. If you own Company A, you can sell options on Company A. This is a well-known conservative strategy that increases your income. It will also limit your gains if the stock increases rapidly.

By greg group: Many income investors use the covered call strategy for monthly income. This is a simple strategy of buy 100 shares of a stock then selling a call against the stock you own. The premium received from selling the call is the income portion of this trade. However, the premium prices can vary from one period to the next. So when is the best time to sell call options?

Richard Bloch submits:Apple (AAPL) is a popular stock for selling covered calls. Given the stock has been stuck in a range for the past few months, that has been a good strategy for collecting an option premium. But what if you don’t own 100 shares of the stock? It is after all, a fairly expensive stock on a per-share basis. Let’s say you own 50 shares of Apple with a cost basis of $12,500 or $250 per share.

By John Dowdee:Covered Call Closed End Funds (CEFs) have mouth-watering distributions ranging from 7% to 10%. This article will analyze the total return associated with covered call CEFs to assess if these yields are "too good to be true". But first, I will provide a quick tutorial on covered calls for the investor that may not be familiar with this class of assets.

By Double Dividend Stocks:
With the recent choppy market action, you may be wondering how best to protect your gains, without abandoning your income-producing, dividend paying stocks. Selling covered calls offers you another income stream from your stocks, in the form of option premiums. This week we'll walk through covered call trades for three dividend stocks from our High Dividend Stocks By Sector Tables.

George Spritzer submits: Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund (ETW) is a covered call global equity closed end fund with about $1.4 Billion in assets under management. The primary objective of the fund is to provide current income and gains, with a secondary objective of capital appreciation.